Q&A: I'm Burned Out But Not Quite Ready to Retire

0:08Welcome to the Afford Anything Podcast, the show that knows you can afford anything, not everything. This show covers five pillars, financial psychology, increasing your income, investing, real estate, and entrepreneurship. It's double-I fire. I'm your host, Paula Pant. I trained in economic reporting at Columbia. Every other episode-ish, most Tuesdays, I answer questions that come from you, and I do so with my buddy, the former financial planner, Joe Salcihai. Joe, I've got a situation for you. A situation? A situation. Imagine being in your 30s, totally mortgage-free. You've paid off your mortgage, but you're extremely burned out of your job.

0:48I love the fact the mortgage is paid off. Right? All right. We're going to tackle that first. Then we're going to talk to somebody who's wondering how to evaluate a portfolio manager. Are they getting, you know, yeah, there's some nuance in that. And then we're going to hear from a dad who's wondering about his kid's Roth IRA, 14-year-old kid's Roth IRA. A head start. Yeah, exactly. Awesome. With that, we'll go to our first question today, which comes from Anonymous. Hi, Paula and Jo. I'm Anonymous calling from New Zealand. Long-time listener, first-time caller. I'm 38, and I'm at a crossroad, and would love to hear how you think my situation through, because I'm caught in a what-if spiral.

1:32For context, I've been a teacher for 15 years. In the past two years, I felt really burned out and I focused on aggressively paying off my mortgage. Now I am mortgage free and I have lower expenses and I want to leverage it into better work-life balance by moving to relief teaching. But I've gone from having one clear, defined goal of FIRE to a lot of options that I don't know how to think through. I'm considering working full-time for a further two years until I'm 40, then becoming a relief teacher to pay for my day-to-day living while my investments grow in the background. I currently only have$160 ,000 invested in a growth fund.

2:06I have$140 ,000 in KiwiSaver, New Zealand's retirement account. I can't access that until 65. This is also invested in a growth fund. I have a 10k emergency fund and another$15 ,000 cash that is earmarked for things like saving for a replacement car, an overseas holiday, or a marathon major if I could qualify. If I continued to work full-time for approximately 7 more years, I could fully fire with$900 ,000 as I estimate my spending will be$36 ,000 a year. However, I don't think my body and mind are going to hold up for another 7 years. Talking with relief teachers, I can reliably earn between$25 ,000 to$30 ,000 per year relief teaching, but this means I may need to top up my living expenses from$5 ,000 to$10 ,000 each year until my investments have grown to$900 ,000.

2:55This could be 10 years or more. My question is, how do I best prepare myself to become a relief teacher on a fluctuating income? Do I invest aggressively for 2026 and then in 2027 contribute to a cash account so that I can cover the difference between income and expenses while relief teaching? Do I stop investing now and save a really big cash cushion? Or do I work three or four more years to build up my investments more so I'm over halfway to fire before I move to relief teaching? I currently invest$1 ,900 a fortnight and save$450 into cash savings, which is approximately a 65 % after-tax save rate.

3:33I'm no Taipei spreadsheet queen with a dozen contingency plans. I stick to the KISS method, keep it simple stupid, and this situation has too many moving parts for me. Please help. It does have a lot of moving parts, Paula. But I love it. A 65 % after-tax savings rate. That's incredible. Just huge round of applause. Can we get a round of applause here?

3:59Thank you, Steve. Well, Anonymous, since you are a teacher, I thought we might honor someone else who was a teacher before switching to a different career. Oh. Sheryl Crow, the singer Sheryl Crow. Really? Yeah, Sheryl Crow was a music teacher before her singing career took off. And one day she just said, I just want to soak up the sun. No more teaching. Yeah. She soaked up the sun and wanted to tell everyone. To lighten up. Yeah. Sheryl Crow was a music teacher and then switched to doing something that she found more fulfilling. So anonymous, we are going to call you Sheryl. Man, diving into this, can we shine a light on something I think is really cool besides paying off the mortgage.

4:45Yeah. Which is something I know that you spoke about this when Andy Hill was the guest on your show, just how this idea of paying off your mortgage, people go interest rate, why would you do that? But bam, for Andy and here for Cheryl, paying off the mortgage fits the bill. It is the thing that is going to give her the flexibility to do what she wants much earlier. So I think that's cool. The other thing that's really cool that I think is often overlooked, the value of that emergency fund and the sinking fund, the$10 ,000 in the emergency fund and the$15 ,000 for things like a car, whatever these big purchases might be.

5:31She doesn't have to worry about those things, Paula. And what I see happens in a portfolio is people invest more conservatively than they truly should because they're worried about what if something comes up. And so when people talk about risk management, the pushback I always get is, well, that emergency fund's not earning a great rate of return. And it's not. But what's cool is, is that she can be in growth funds like she is with the rest of her money, growing it without worry because of the fact that she knows that if something comes up in the short term, she doesn't have to go near that money.

6:08So it's this ability to invest the way that you should instead of trying to cover all these what ifs and backing down your ability to earn a lot of money with your money that truly is the magic of that emergency fund. So I love that. I think that's all great. Yeah. One thing that I love about your plan, Cheryl, is that your next chapter, which is to become a relief teacher, that will cover most of your living expenses. Not all, there's still a small gap to plug, but that gap is relatively small. That next career, relief teaching, or as we call it here, substitute teaching, right? That's going to cover the bulk of what you need.

6:57So we're actually solving for a very small dollar amount when it comes to the budget deficit. Yeah. Cheryl, to your first question, you know, where you asked, hey, should I just suck it up and stay in this job for a while longer? I know you floated the idea of potentially working full-time for seven more years so that you could fully fire with 900 ,000? No, don't do that. Because it is so clear from your question that you are done. You are burned out. You don't know if your body can take it. You don't know if your mind can take it. You don't know if your spirit can take it. Everything that you've done so far, paying off your mortgage, having a 65 % savings rate, you have needed to have a strong spirit in order to be able to do that.

7:48And I don't want you to do anything that's going to break that spirit. And when we are in jobs that are not our calling, we know that, and that really can break the spirit. And so that's the first thing that I'm protecting for is I'm protecting for that spirit. I truly think, Paula, the real question is, what am I going to do beyond get the hell out of here? That's where I think the magic is. I think that when she lights up about something else, whether it makes money or not. I mean, you'll be able to design a portfolio if it turns out to be a thing that doesn't make money. But once she finds the thing that lights her up, I think that is where I would be spending my time first before any of these money questions.

8:36I think, Joe, where you and I are in total agreement is the option of spending seven more years in this role is completely off the table. That's a no. That's a hard no. the option of becoming a relief teacher a substitute teacher is on the table it sounds as though she's open to that she's had conversations with other people who do that full time she knows her income would decline and her income would also be fluctuating and so there's a cash flow management question around should she start drawing down from some investments in order to be able to do that my assumption Cheryl by the way is that if you did that, here's what I'm guessing is going to happen.

9:18I'm guessing for the first three to six months, you might need to just rest and recover. But I'm guessing after about six months, you will have so much more energy because you won't be in the role that you're currently in, which is draining so much life from you, that with that new energy that you have, you will have ideas and enthusiasm for other things that you would do in that time. that would have some type of income generating outcome. Yeah, at the very least, I think she'll have the quiet versus every day going, man, I don't like this. Now she'll be able to be in a quiet place where she can really see where the river is flowing.

10:02Right. Yeah, because she also asked, so if she doesn't work for seven more years, should she work for three or four more years? No, quit as soon as reasonably possible. If maybe you have to stay through the end of this academic year, but quit at the end of this academic year. Quit as soon as reasonably possible without doing harm to your current students. Well, and I think part of the question is which piece of it is the piece that isn't connecting? Is it the piece? Ostensibly, there's a reason she got into teaching in the first place. Is it this particular role? You know, sometimes the problem is, and we don't know any of this, right?

10:42So this is 100 % conjecture. We don't know any of this, but these are the questions that I'd be asking. Many of the smart people that you and I have interviewed, people that are phenomenal at finding this workplace harmony, often it's just the change of scenery and being with a different group of people that are doing the thing that you love. If she loves teaching, maybe it's just finding a different role. Maybe it's finding a different group of people, a different situation where she's with people that are lighting her up and affirming whatever teaching piece that she loves. It could be that simple or it could be, no, teaching's not for me.

11:19It's something completely different that is for me. I need to be done with teaching. I don't know the answer to that, but certainly finding something, beginning to explore what it is that is the draining piece, I think it's going to start unlocking a lot of doors. Yeah, because sometimes it could be the relationship with the manager or the relationship with the administration, right? Sometimes it is that a person's view of their direct manager, whomever you directly report to across all industries, your view of that person and your relationship with that person has a disproportionately large impact on whether or not you enjoy your job.

12:04It's your relationship with a single person makes or breaks the job in so many cases. My son had this during his time at Microsoft. He had three different bosses and it was funny. One boss, the job was okay. One boss, the job sucked. The third boss, the job was amazing. Yeah. And he just reflects back on his time at this major organization. Like, do you like Microsoft? He looks back and goes, you know what? My view of the entire company was based on who I was reporting to. Sometimes it was good. Sometimes it sucked. And sometimes it was phenomenal. It was all based on one person. Yeah. And there's research that documents this, that your impression, a person's impression of their direct supervisor has an outsized disproportionate impact.

12:51So Cheryl, it might be the case that changing schools, changing administrations, working with a different group of colleagues, maybe that'll do it or maybe not. Maybe the solution is, and it sounds clear from your question, that the direction that you intend to go is to switch from full-time teaching into relief teaching, to take the income hit that accompanies that and then to solve for the question of how do I address that income hit. And my direct answer to that is make that switch immediately as soon as when the academic year ends, right? Don't wait for three or four years, right? Make that switch as soon as you reasonably can without disrupting the school year because the sooner that you are relief teaching and the sooner that you have that time free and that energy back, the sooner you will have the space to figure out what else you're going to do to fill that time.

14:02And I'm guessing whatever that will be will produce some type of an income. So yes, you will be drawing down from your accounts in the short term, maybe for the next year or two or three, but I don't think that that's going to happen for the next decade. You're 38 now. If you leave this role by the time you're 39 or 40, I'm pretty sure that by the time you're 43, 44, you will have found something else that you will enjoy quite a lot more that you don't have any sense right now of what that is because you're so busy with the day-to-day. But once that time is clear, you'll find the next thing. Mechanically, what we're doing is changing the emphasis from money being the most important piece to your time is the most important piece.

14:58And both of these are finite resources. But in money communities, we tend to optimize for more money when I certainly believe that optimizing for my time is incredibly valuable and I'm not going to get it back. So do the thing that gives me the time to do what I really want to do is much more often what we should be solving for. Yeah. And I would say even beyond time, your mental bandwidth, your energy, I'm going to use the word spirit again. Your spirit is the number one thing to solve for because that's the source of everything that follows. Yeah. That's where I'm coming from, Paula, is that the time in a negative mental space.

15:43It's the most quantifiable. Yeah. Well, and the time in a negative mental space just isn't worth it. Right. It isn't worth it if I got to spend the next seven years trying to dig out. Now, if we're solving for quiet and the ability to be quiet, then what I'm doing is I'm building up that emergency fund to buy myself more time over the short run, full well-knowing that is suboptimal money-wise long-term. It gives you the space when you need it, which is right now. I need that space right now. But I believe then it's easier than to build a plan for growth in the future when I'm in a headspace that I'm putting it there in a much more healthy way.

16:29Right. The thing that really, really is exciting about this is how close she is to being able to do that because her overhead is so low. Exactly. Mortgage is fully paid off. Living expenses are low. That gives you so much freedom. A 65 % savings rate throughout your 30s, I mean, that unlocks doors that allows you to really enjoy your 40s and 50s in a way that most people only dream of. So a huge congratulations to you for managing your money so well that you have the freedom to leave a job that is not your calling. The sooner you do that, the sooner you'll find the thing that is what you were meant to do.

17:20Well, thank you, Cheryl, for the question. I look forward to you leaving your job as soon as reasonably possible. And I know, Cheryl, that change will do you good. that change. What do you good? That change. All right. Well, we are going to hear from the sponsors who make this show possible. When we return, we're going to hear from a listener who hired a bank portfolio manager, but isn't quite sure how to judge the results. And after that, we're going to hear from the father of a child, a 14-year-old who just earned his first W-2 income. and wants to put that money into a Roth IRA. Both of those are up next.

18:16Welcome back. Our next question also comes from an anonymous caller. Hey, Paola. I love your podcast. So I have money invested with a portfolio manager at a bank. While I know some investing basics, I'm unsure how to evaluate whether he's doing a good job. I can compare returns after fees to benchmark funds, but the portfolio has only been invested for a few years. Setting aside short-term volatility, how long should I wait before fairly assessing his performance against benchmarks? After two years, he's beating the large-cap benchmark, underperforming by half in mid-cap, and matching or slightly trailing in small cap, developed, and emerging markets.

18:58Granted, large cap makes up half the equity portion of the portfolio, so it's weighted more heavily, while mid cap is around 2%, with small cap and developed markets covering the majority of the rest of the portfolio. The manager favors dividend funds, arguing that I can use the income as needed. I understand this makes sense if I need money now, but I'd rather maximize long-term returns for bigger purchases or retirement later. Sometimes I wonder if I get better results simply investing in an S &P ETF for 10 to 20 years. Thanks in advance. I love this question, Paula, but first we have to give him a name.

19:37I have an idea. Oh, what's your idea? Well, he's a guy who aspires to be a great investor. so I think we got to think about people like Ray Dalio, right? So maybe we just call him Ray. Ray. All right. I love it. Ray, I agree with your instinct. I am, for the long term, not a huge fan of dividend-focused funds either. I share your doubts about the portfolio manager or really for a couple of reasons. One is there's the strategy itself and then also there is what sounds like a lack of communication, coordination, education between the two of you. So there's two issues here. One is the relationship between you and this portfolio manager, and then the other is the substance of what the portfolio manager has said.

20:29I've got doubts in both arenas. With regard to dividend-focused funds, those tend to be the funds that don't grow as much over time. And you've clearly stated that growth is your priority. And I understand And by definition, dividend-focused funds bias towards an income stream, but you can also harvest capital gains if you want an income stream. I mean, we did an interview with Mir Statman, a behavioral economist, who talks about how growth is growth, returns are returns, whether it's capital gains or dividends. I mean, there are tax implications of the difference between the two, but ultimately, mentally bucketing for any reason outside of tax planning doesn't make sense from a rational mathematical standpoint.

21:19It's simply a mental model that people use. Well, dividend-based fund, the capital gain might not be as high, but he can make up at least a good portion of that with the dividend income stream being reinvested. The problem is that creates friction if he's outside of a tax shelter. But if he's inside a tax shelter, I'm with you. A gain is a gain is a gain. So a dividend income strategy could produce more consistent gains than a growth strategy because of the fact that that dividend is, by definition, going to be more constant. It's going to be this river flow that is less likely to be a boom-bust cycle like a growth fund would be.

22:06So while I have doubts as well, my doubt is more along the communication about why the growth manager is using the dividend fund than the fact that he's using the dividend fund. Because maybe a dividend fund will get him there and it's inside of a tech shell. I don't know. I think his gut is right. I think his execution could definitely use some cleanup. First of all, when we look at volatility, he said looking at volatility, of course, the manager is going to skew left and right. The manager is going to skew left and right, but also the benchmark is going to skew left and right of what you're trying to do, Ray.

22:50The first benchmark, the only benchmark that matters, throw away all these other benchmarks, is what rate of return do I need to reach my goal? period, full stop. That is my benchmark. And when I start with that, a lot of this stuff that's blowing in the wind no longer blows. Doesn't really matter because I then can design a portfolio around achieving that result. And then my benchmark that I create is a hybrid of all of these garbage benchmarks that you're looking at. And I call them garbage because for your goal, it doesn't matter if he beats emerging markets. It doesn't matter if he beats small cap.

23:32What matters is the hybrid, right? The hybrid of all of these things that I set in motion to reach my goal. So that's going to give me two things. It's going to give me a performance measurement, but it's also going to give me a risk measurement. What's the amount of risk that I want to take to get there? And that is a discussion that I have with my team, which might include the bank portfolio manager might not around, okay, what's the level of acceptable risk that we're taking? And then I create this hybrid benchmark that, by the way, Paul, it doesn't look like anybody else's benchmark. This is my benchmark.

24:12And my benchmark is a combination of large cap, international, small cap, mid cap. And then I'm no longer looking at, is my manager winning versus the S &P 500? Who cares? It does not matter whether he's beating the S &P 500. The S &P 500 has zero to do with your goals. So if he's overperforming here, he's underperforming here, doesn't matter. My answer is we were looking for an 8 % rate to return that quarter and we didn't get it. Why didn't we get it? There's two reasons. Well, there could be three reasons actually. Reason number one is we have set up the benchmark incorrectly. So I'm in the wrong asset classes and we set this up incorrectly.

25:00Reason number two is fees, right? I paid more. Wow. Look at that. I didn't put fees at the bottom. I actually put it in the middle. You like that? But it can be fees. He could be charging too much, right? I could be skewing lower because the manager's taking too much of my money and I'm not getting it. The third reason could just be that the market didn't deliver it. And this, by the way, is what the reason is when we underperform all the time. And then we ask, do I need to change my allocation to make this up? Do I need to save more money to make it up? Or is this just over time? Will it make it up?

25:37I like that a hell of a lot better than playing the, well, he's underperforming on the emerging market side, but he's overperforming on the large cap side. And oh my God, I can't monitor that. You won't be able to monitor that. There's no way you can do that. Create your own benchmark based on your goal and monitor that. And then it's very easy to determine which of those three things. You know what? All the markets were down that are based on our allocation. And looking at the long-term, I know that these markets historically have gotten me there over 20 years. So then I'm taking into account, Paul, of the volatility and I'm going, I've got two choices now.

26:20I can either, number one, change towards something that has more of a recency bias, which you can see the danger in that, right? Whatever has been quote doing better lately, that screws up my portfolio return. I can adjust based on the change in my goal and the change of risk that I want to take. That might make sense. Okay. I want to take more risk. I can say, I'm not going to change anything and I'm going to fill in. I'm going to change my savings rate to invest more heavily knowing that this volatility, if I invest more heavily, I can invest while it's down. So when it comes up, I'm going to fill in even better, right?

27:05I'm going to take advantage of the volatility in the market. I go from being like a kite blowing in the air and I'm just going wherever the wind's taking me to somebody who's much more in control. And I definitely prefer that way to benchmark my portfolio. Joe, what I hear you saying is essentially you're figuring out your spot on the efficient frontier and then evaluating whether or not the manager is executing that. Yeah, 100%. In the manager's defense, and I do want to make this observation about the portfolio that they've constructed, they have a combination of small caps and large caps with only a very, very small allocation towards mid cap.

27:51and they also have both developed and emerging markets. What I hear within that construction is a healthy dose of low correlation assets in which you have diversification without diversification. Because sometimes when you have too many asset classes, having too many asset classes can feel like diversification, but they actually overlap in their performance and in their composition so much that it just introduces unnecessary complexity without really giving you the low correlative nature that is at the benefit of diversification. So the fact that it's skewing towards the two ends, small cap, large cap, US emerging, I like that component of it.

28:42Yeah. And the reason just to dive into that, that Paula can see that professionalism in the portfolio is because mid cap will often do very closely what large cap does. It's just going to, the highs are going to be higher. The lows are going to be low, but the structure of the highs and lows are going to be based on many of the same stimuli. So you end up with a portfolio that just is a bigger roller coaster in mid cap than you have in large cap, but you don't end up with any portfolio differentiation that would change the game. Like maybe a little bit of gold as an example, like we talked about before, will change the game.

29:22It will very much change the game in your portfolio. Or a dash of REITs can change the game in your portfolio. A lot, yeah. Yeah. And this is then where we go back to the efficient frontier because that's where you can see how you go out on the risk curve And you can see how a dash of a handful of low correlative asset classes can boost your returns without unduly changing your risk profile. But then there are some asset classes that really just increase the volatility and don't boost your returns a whole lot. And so by tracking that, you're able to see that difference between diversification and diversification.